From: glevy@PRATT.EDU
Date: Thu Oct 13 2005 - 19:27:54 EDT
<http://www.moneychimp.com/features/marx.htm>
Karl Marx for Investors
Karl Marx for Investors
Have you read The Communist Manifesto or Das Kapital? You should
consider reading at least a condensed version of these works,
because they might actually make you a better stock investor. (Not
what K.M. had in mind, but a legacy's a legacy.)
The bulk of Marx's writing can be boiled down to two Big Ideas:
1.. Capitalism would destroy itself. That's because price
competition would keep forcing small companies out of business,
reducing former owners and managers to blue collar status; and it
would force companies to keep lowering their costs, including
wages. The result would be a growing and increasingly desperate
labor class, making a breaking point inevitable.
2.. The value of a product equals the amount of labor that goes
into making it. For example, if a factory buys some wood for $50
and then uses $100 worth of labor to turn it into a table, the
fair price for the finished table is $150. Any excess that the
factory charges - any profit - is thus a theft from both workers
and consumers; and as this stolen value accumulates, the factory
owner gets to exploit society on an ever larger scale. Or as Marx
puts it in his own high style, "Capital is dead labour, that,
vampire-like, only lives by sucking living labour, and lives the
more, the more labour it sucks."
Oooo-kay. Now for a little analysis.
The revolution never happened the way Marx predicted, but he may
have been on to something with idea #1, as long as you remember he
was talking about companies that sell commodity items, and have to
compete on the basis of low price alone. Companies like that tend to
have low profit margins, and are vulnerable to any competitor with
cheaper financing or a better way of running their operations.
Commodity companies can be bad news for proletarians and
shareholders alike.
Idea #2 is just ignorant. Profit is the reward for doing a good job
of giving consumers what they really want. Societies that have tried
to abolish the profit motive always have inefficient markets:
shortages, and a general failure for supply and demand to come
together.
So what's here for investors? First of all, you might stay away from
the commodity type companies, and look for companies with an "unfair
advantage": a strong brand name, or a patent, or anything that
protects them from competition and lets them keep their prices high.
Second, since profits are the reward for satisfying customers, you
might look for companies with a reputation for customer
satisfaction.
In other words, once you give Marx a shave he starts to resemble
Peter Lynch or Warren Buffett. (Finally - something really
revolutionary.)
Read the Book:
Karl Marx, Friedrich Engels
The Marx-Engels Reader
"A spectre is haunting Europe - the spectre of Communism."
(Not.) This was certainly influential in its day, though, and
even now many people can't say "capitalism" without
embarrassment. At the very least you can learn a lot about
business by analyzing exactly where Marx's wild logic goes
wrong. This is a standard college text, with The Communist
Manifesto and condensed versions of Capital and other
writings. (The unabridged version would be excruciating,
unless you're a diehard commie ratfink.)
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